Daktronics (DAKT) risk factors, FY2025 10-K

Macroeconomic Risks

1. 01Geopolitical issues, conflicts, governmental actions, including the imposition of tariffs, changes in laws, regulations, and policies, and other global events could adversely affect our results of operations and financial condition
2. 02These impacts could reduce profitability and could have a material adverse effect on our results of operations and financial condition if they escalate into geographies in which we do business, manufacture our products, or obtain raw materials and components for production
3. 03Our business is sensitive to global economic conditions, including recessions, inflation, and interest rate fluctuations. Weakened global economic or recessionary conditions may materially and adversely affect our industry, business and results of operations
4. 04In addition, these demand fluctuations may reduce our ability to effectively utilize our capacity and negatively impact our results of operations
5. 05Unexpected events, including natural disasters, weather events, wars, terrorist acts, and pandemics, may increase our cost of doing business or disrupt our operations

Risks Related to Our Business and Industry

1. 06We may be unable to protect our intellectual property rights effectively, or we may infringe upon the intellectual property rights of others, either of which may have a material adverse effect on our operating results and financial condition
2. 07If we fail to timely and effectively obtain shipments of raw materials and components from our suppliers or to send shipments of our manufactured product to our customers, our business and operating results could be materially and adversely affected
3. 08Electronic and other components and materials used in our products are sometimes in short supply, which may impact our ability to meet customer demand. Transportation costs and availability can fluctuate due to fluctuations in oil prices and other social, economic, and geopolitical factors
4. 09Expanding our international footprint remains a key part of our growth strategy. However, operating across multiple countries exposes us to a variety of risks that may not be present in our domestic operations
5. 10We depend on third parties to complete some of our contracts
6. 11We may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may materially and adversely affect our business and operating results
7. 12Our results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards
8. 13We enter into fixed-price contracts, which could reduce our profits if actual costs exceed estimated costs
9. 14Backlog may not be indicative of future revenue or profitability
10. 15Unanticipated events resulting in credit losses to us could have a material adverse impact on our financial results
11. 16Our actual results could differ from the estimates and assumptions we make to prepare our financial statements, which could have a material adverse impact on our financial condition and results of operations
12. 17Unanticipated warranty and other costs for defective products could adversely affect our financial condition, results of operations, and reputation
13. 18The terms and conditions of our credit facilities impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition, make us vulnerable to adverse economic or industry conditions, and cause liquidity issues
14. 19If we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects
15. 20Acquisitions, investments, and divestitures pose financial, management, and other risks and challenges
16. 21There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits
17. 22If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings
18. 23We may fail to continue to attract, develop, and retain key personnel, including management personnel, which could negatively impact our operating results
19. 24Increases in the cost of employee benefits could impact our financial results and cash flows
20. 25The outcome of pending and future claims, investigations, or litigation can have a material adverse impact on our business, financial condition, and results of operations
21. 26Information Systems, Legal, and Regulatory Risks
22. 27Our global operations expose us to global regulatory, geopolitical, economic, and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition
23. 28Our business involves the use of hazardous materials, and we must comply with environmental, health, and safety laws and regulations, which can be expensive and restrict how we do business
24. 29Doing business on a worldwide basis requires us to comply with the laws and regulations of the United States government and various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners, customers, and investments
25. 30Regulation in the areas of privacy, data protection, and information security could increase our costs and affect or limit our business opportunities and how we collect or use personal information
26. 31Environmental, social, and governance (“ESG”) regulations and disclosures may impact our reputation, expose us to additional costs, or have other impacts which could adversely affect our business, financial condition, or results of operations
27. 32Global tax law changes may adversely affect our business, financial condition, and results of operations
28. 33changes in tax laws, or the outcome of income tax audits and any related litigation. The United States Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate
29. 34Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price
30. 35Insurance coverage can be difficult or expensive to obtain, and our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations
31. 36We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals”, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks

Risks Related to an Investment in Our Common Stock

1. 37The protections we have adopted and to which we are subject may discourage takeover offers favored by our stockholders
2. 38Our common stock has at times been thinly traded, which may result in low liquidity and price volatility
3. 39Significant changes in the market price of our common stock could result in securities litigation claims against us
4. 40be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns even if we prevail in the litigation, which could harm our business
5. 41Activist stockholder activity has impacted, and may continue to impact, our governance, operations, strategic directions, and the value of our common stock
6. 42Our executive officers, directors and principal stockholders have the ability to significantly influence all matters submitted to our stockholders for approval